I keep thinking of Madoff's fund. It was once called "the Jewish T-bill". It worked just fine until there was a significant net outflow. Then, total crash, because the backing assets were not there.
Tether is way too much like that.
Remember, Tether has no upside. There is no reason to ever hold Tether for any length of time.
> Remember, Tether has no upside. There is no reason to ever hold Tether for any length of time.
It looks like USDC, issued by a company co-owned by Coinbase (YC incubated right?) and Circle, is quickly replacing tether. One year ago there were about 1/10th of USDC compared to tether, now it's half.
Apparently USDC are really fully backed by real USD and the smart contract for USDC can block any address containing USDC at any time (which eases some concerns regarding complying with authorities while it probably raises some concerns for others).
I take it for those concerned it wouldn't be unwise to sell your USDTs for USDCs.
For somehow I don't believe that Coinbase is pulling a ponzi scheme with USDC.
The March attestation was published 5/24 (the day prior to that article) and is available on the Centre website[1]. It doesn’t appear there’s cause for alarm in this case.
Except the attestations have stopped saying how much cash they have in their accounts and now just say that Cricle _claim_ they have enough assets to cover the liabilities.
This is a HUGE change and massively cause for alarm.
Note that apparently attestations just validate that a certain bank account had a certain number at a certain time, which obviously does not account for loan obligations. In Tether's case
> [Tether was] Failing to complete an audit and settling on an attestation “for transparency”. The morning of the attestation, tether moved $380m from sister company bitfinex into a bank account to pass the verification
I hold a decent sized block of USDC via BlockFi and earn 8.6% APY. I realize there is inherent risk (after all, I am earning 8.6%) but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts and it's a risk I am willing to take. By default, BlockFi issues GUSD as their stablecoin of choice, but Gemini (GUSD) market cap is only $145m, whereas USDC market cap is 22 with a B billion. Ultimately, I always swap all my crypto "cash reserves" from the default Gemini GUSD to USDC.
I stay away from Tether completely as it has a shaky past and unknown ties with China and exchanges.
At 8.6% APY, would you say you believe you have a sub-8.6% chance of the funds disappearing in a given year? Considering that it would take over a decade to return the original capital in value, I feel that the compensation is low relative to the risk of loss. Ten years is a lot of time for a company to bungle your funds, especially in the cryptocurrency world.
To qualify to borrow at 4.5%, you have to have a loan to value ratio of 20%. If I understand correctly, that means you have to deposit 5x crypt than the value of the loan.
On the savings side, the rates vary. If you deposit BTC, you earn 5% for the first 0.5 coins, 2% for the next 19.5 coins, and 0.5% for the rest.
Since the loans are secured, if the value of bitcoin does not move too much they can cover defaults by liquidating the collateral. Given the volatility of crypto currencies though, I still assume they will blow up at some point in the future.
Sub 8.6% chance of funds disappearing? Absolutely! Listen, I'm no Berkshire Hathaway, but the likeyhood that BlockFi one of the world's largest holders of BitCoin and backed by $500+ million in VC funding just outright fails is very very low.
I know, here come the Enron or Mt. Gox rebuttals. The regulation and oversight that BlockFi has is much greater than those other examples.
It would be interesting if somebody could figure out the likelihood that BlockFi fails. Though I don't see how.
Given that the 8.6% return is contingent on those funds being loaned out to third parties in a manner that involves risk (like margin trading), I am highly skeptical of their ability to not lose your money on the timeline of a decade. The trustworthiness of Blockfi doesn't matter if they mess up and end up loaning money to someone who ends up unable to pay the bill - and the person on the hook if the borrower does not pay is the lender of the capital. Not Blockfi. Why do you think the interest rates are so juicy?
If it was as safe as you seem to think it is, why didn't they just pony up their own money? 8.6% is far above any standard investment vehicle at the moment. For a safe investment, it's free money!
The thing is though that most all of these crypto lending platforms only offer over collateralized loans, so the risk of them being screwed over by lack of payment from the person taking the loan is negligible. Meaning If I want to lend $100 worth of USDC I must give $200 as collateral worth of BTC to get the loan. Where if that $200 worth of BTC drops to a worth of $100, it's liquidated, paying off your loan, leaving the lender with no outstanding loan and the loan taker with the $100 worth of USDC still, but no longer their BTC. (this would trigger a Capital gains event too, as the BTC was effectively sold.)
These types of loans of course aren't useful for most people in the traditional sense where somebody needs access to money they don't have. These are mostly for 2 cases:
1) Exposure to other crypto when you think both your collatoral and the crpyto you want to be lent will both be worth more. SO you borrow $100 worth of USDC, give $200 BTC as collatoral, use the $100 USDC to buy $100 worth of ETH. SO if after a month ETH and BTC have gone up, you can sell enough to pay the $100 USDC loan and keep the profit.
2) Access to illiquid capital. If you have $1 million of BTC but don't want to sell it and trigger a capital gains event, you use that as temporary collateral to get access to something else, thus never selling your current crpyto holdings (unless they fall below the liquidate threshold of the loan)
I should say too, using these methods still has counter party risk regardless.
One extra detail. The liquidation price isn't equal to the loan principal, it's higher. So in your example $100 USDC loan with $200 BTC collateral will have the BTC sold once the value drops to $150 and the remaining BTC if any is returned. This is to reduce the chances of the price dropping below the principal before liquidation is complete.
The reason they require so much collateral is because the value of the collateral is highly correlated with the value of the investment, since both the investment and the collateral are in the form of crypto-assets, and crypto-asset prices tend to move together. This means, in the event of a crash in the crypto market, the probability of incurring losses from such a loan would not be negligible.
Then there's also foreign exchange risk. The return on these loans is quoted in terms of the currency the debt is denominated in, whereas what the investor cares about is the return of the investment in terms of their local currency. This is the same situation that an investor would face if they decided to buy Argentine bonds, which pay over 20% annually in pesos. The return that they would get in their local currency would likely be much smaller. It could even be negative.
Thank you! I've been trying for years to get someone to explain to me how DeFi loans make any sense whatsoever when they are all so over-collateralized. Your explanation helped put the pieces together a little bit. I still don't understand how the unit economics make much sense, but yeah.
Dollar yields in the crypto universe have forever been higher. I've consistently got 12-25% per year from 2015 using exchanges like Bitfinex and haven't lost a single dollar.
Why isn't it arbitrated away? Because institutions and market makers don't trust crypto. When they do, I'm sure it'll go as low as rest of market rates.
One of the reasons why the yields are higher for stable coins is they are not bound by central banks‘ interest rates. This is especially true for purely synthetic stable coins (DAI, sUSD, sEUR) because they don’t even need to be backed by the underlying asset.
The other reason is they cut the middle man between a creditor and debtor i.e. banks.
If banks started to sell financial products based on liquidity pools, they had a hard time to compete with places like compound or aave. However, they would set themselves free of the federal fund rate and therefore they could actually provide higher rates to their customers.
The fact that the yields are higher for stablecoins simply means borrowers of stable coins are paying more to borrow stablecoins than they would if the borrowed the underlying currency instead. It has nothing to do with middlemens or central banks's interest rates.
So why can’t banks provide higher yields with simple savings accounts? If it’s got nothing to do with federal fund rates or middle men?
Here in Europe banks are entering an existential crisis as the ECB maintains zero and negative interest rates (of course, this is simplified as there are actually several different federal funds). Banks can’t finance their business anymore. This led to increasing bank fees, bank mergers and basically bad service for their customers including no interest paid on savings.
Defi will sweep away the banking market on the long run if central banks keep doing their lax monetary policy for much longer.
> So why can’t banks provide higher yields with simple savings accounts? If it’s got nothing to do with federal fund rates or middle men?
Because banks are regulated (to avoid systemic risks), so they need to balance deposits with risk free loans (or discounting the riskier loans with extra capital).
> Defi will sweep away the banking market on the long run if central banks keep doing their lax monetary policy for much longer.
By definition if they provide higher yields, this should be because they are riskier. (It might be a non-obvious risk, e.g. liquidity risk due to lack of lender of last resort).
> they need to balance deposits with risk free loans
You mean "reserves". This is the reserve requirement of banks which they need to hold for deposits. These reserves are held by their responsible central bank. Which they need to pay for in the Euro zone (that's what it means federal fund rates being negative). So this gets me back to my initial point: Banks depend on the federal fund rates. DeFi systems do not.
But I agree with you, higher yields do reflect higher risks. Of course, depositing money in DeFi protocols is still riskier than leaving it on your bank. But bringing money to your bank means you're so risk averse you're willing to lose money for keeping your money. At least inside the Euro zone, currently.
> So why can’t banks provide higher yields with simple savings accounts?
Because yield is the price that borrowers pay for borrowing funds. When there are a lot of funds available for borrowing and not many people wanting to borrow yields will fall. There is just nothing central banks or commercial banks can do to raise yields if there is little demand for loans.
> There is just nothing central banks or commercial banks can do to raise yields if there is little demand for loans.
I am sorry but I think you've got this completely the wrong way. The demand for loans did not shrink in the last couple of years: Look at the housing prices (including the infamously high rents) and the volume of credits people burden themselves with. Rather, the amount of liquidity (i.e. money) circulating around has increased significantly. This pushed interest rates down to a minimum. And why is that so? It's because central banks are flooding the economy with money for years. So it is well within their power to change that. But it won't be nice for many parts of our inflated economies ...
This is not how banks operate. When a bank makes a loan, the bank creates a new deposit in its balance sheet, in effect creating new money out of thin air. [1] Most of the money in circulation is created by banks in this way. This means banks don't need liquidity to make loans, because they can create their own liquidity. And, yes, the demands for loans in the EZ crashed during the financial crisis and hasn't recovered ever since, which explains the low interest rates.
Wag, a mobile app for finding dog walkers, received $300M in VC funding. It failed.
“Holds Bitcoin” and “received a pile of loose VC money” are not the gold standard of reliability in a financial provider that promises stable returns on a no-risk investment.
It's all highly leveraged on all sides, margin calls will amplify things if things start crashing (which will then risk not covering the initial investment, trigger a run, and amplify further).
I probably should have left that part out of my original comment, since it was just my personal opinion and not relevant to the point I was making (risk-free rate vs. non-risk-free rate).
Have you looked into decentralised alternatives like aave? I tried using blockfi, nexo and celcius. All three made withdrawing such a hassle. Repeat identity verification, mandatory 24 hour waiting period etc. I got fed up and turned to aave.
Because the increase in a share's value is tied to a company's profits and losses, while the increase in a cryptocurrency's value is tied to hot air and memes (exhibit A: Dogecoin).
Because an index tracker exposes you to the risk of falling indices. Using a solid stable coin (DAI) and earning yield using an established lending platform (Compound or AAVE) or liquidity pool (Curve) does not. However, these new financial tools of course have other inherent risks but they are probably smaller than exposing oneself to the wildly fluctuating Bitcoin price.
> the smart contract for USDC can block any address containing USDC at any time
Is this documented anywhere? What's the procedure within USDC to perform this block? Is it just whoever has the right private key can execute this blocking function and propagate it through the blockchain?
Does the proxy implementation pattern used in this contract actually mean that the owner of the corresponding keys can not only block addresses from holding USDC, but actually swap out the entire implementation, e.g. for one implementing transaction or inactivity fees?
Why does it matter? They owe you the money in the first place. If they’re ill-intentioned they can just refuse to redeem your coins, or require that you send them to a new contract with different rules.
There’s no reason credit instruments should be on a blockchain in the first place, given you’re depending on a central party for redemption.
> There’s no reason credit instruments should be on a blockchain in the first place, given you’re depending on a central party for redemption.
Can you elaborate? Say you issue RUNEKs, how do we move them around freely in a digital world with the assumption that you are not required for transfers?
Runek seems more likely to be asking, why pay the very high price of putting a trusted instrument on a trustless blockchain. Which I believe is a fair question.
Oh hm I should of clarified, I meant more like the human procedures to go forth and run the blacklist function, I'm sure the actual code is documented (and it appears to be - nice!), but it doesn't really matter how secure the code is if anyone inside the organization can execute it.
Although having an un-block function is good thinking since it would allow them to reverse course - no bad decision is permanent.
Regarding USDC - people in control of usdc can (and did) blacklist any wallet at their own desire, so it's not much different from storing money in bank, exchange etc
How about DAI ? This stablecoin doesn't have both USDT's and USDC's disadvantages
Technically still not 60%, but thank you for pointing this out! I was not aware of this.
If i interpret this correctly, this could lead to a very high spike in interest for dai lenders on other collateral currencies, in case the usdc collateral goes bad.
Stablecoins are an unfortunate side-effect of limited banking for the crypto industry. For the longest time, even legitimate exchanges had issues getting deposits/withdrawals working properly with normal banking system.
Most traders I know use tether to move funds between exchanges for arbitrages and/or wait out a correction. Some are also using it to generate yield, but other than that, nobody is holding onto it for the very long term.
And Tether is not the only game in town, USDC (which is by well known/regulated entities here in US) has been getting a lot of traction, it now has about 1/3rd of Tether's market cap.
Stablecoins have utility even when there is banking available. The benefits are that its much faster to transfer globally in minutes and works on weekends.
imho this observation of you just adds to every "stablecoins are a scam"-post. If there is indeed no significant outflow out of the stable-crypto system, I don't know what's stands in the way of companies to just print money out of thin air in there - which then goes to prop up bitcoin, bringing in real money from the bagholders.
Ironically they are doing exactly what the fed does to avoid bankruptcy, just keep the printing presses going whenever your economy is having trouble. As long as you can print infinite money you can always buy BTC at 25k-40k (Keeping your collateral solvent). You can always attract more USD by increasing the interest rates. It only ends when a regulator or judge steps in and asks them to pause their operations for a week for an investigation to begin.
People, mainly in Asia, use tether where trading crypto with fiat currencies is either prohibited or very difficult, whereas it remains marginal in markets such as the United States.
I.e places with exchanges that don’t have good fiat rails for various reasons.
I assume these people don’t stay in tether long, they just use it like a checking account when they cash in and out of positions.
I also assume that if tether went away tomorrow, people would either use another stablecoin like USDC and if all stablecoins went away, they would just trade in and out of btc.
If tether went away tomorrow, 60 billion of "assumed dollars" backing up crypto asset values would also vanish. Such an event would immediately tank the dollar value of all cryptocurrencies (real dollars, not USDT, that one would explode to the moon instead). And not just by 60 billion dollars of total market cap, but more like 600 billion to a trillion. There's a lot of fantasy value for each actual dollar (or USDT, as long as people believe these are basically equal) in the crypto market caps.
Yeah sure but would that be worse than the other crashes that have happened over the life of BTC and other crypto assets? What kind of draw down would you expect and why?
I think it’s unlikely that this would happen to all stable coins. So what would this scenario look like if USDC or DAI still existed?
It would be worse because I think it would finally end the sequence of ever-bigger bubbles followed by collapses to higher lows.
Why? Because the narrative that fueled this sequence has been "people with ever deeper pockets coming into crypto", and we are close to the end of this narratives' natural life anyway. The current "ever-deeper pockets" are institutional investors, which is as far as it gets in terms of deep pockets anyway, but which are also very sensitive to risk and need calculable risk envelopes. Stablecoins, with their publicly-known market caps, provide an approach to guesstimate the total amount of actual value underlying cryptocurrencies and thus help significantly in evaluating the risk of a crypto investment - theoretically, as long as we know that there is X amount of fiat money invested, the total crypto market cap cannot fall below that value. If we now learn that a huge chunk of this money does not exist anymore or never existed at all, the risk calculation becomes much worse. It is akin to a fiat currency of a country that is found to have blatantly invented big chunks of its official GDP for years - nobody would want to store value in that currency anymore. And without institutional investors, there are no "deeper pockets" anymore, hence the primary reason why most people hold cryptocurrencies - to participate in the growing crypto pie - falls apart, which should trigger a series of waves of sell-offs, similar to the "buying waves" during the last decade, but inverted (quick drops to lower lows, followed by slow recoveries to lower highs, followed by lower lows and so on).
If price collapses cause the exchanges to fail and disappear with their customer's assets then I suppose you'd be better off having held your own keys. But you still have an asset who's price has collapsed.
Honestly Tether doesn't really to be that much different compared to fractional reserve banking. The biggest difference is the government protects banks from bank runs while Tether enjoys no such privilege.
There are complex and strict rules around commercial banks that direct to their loan to value ratios, capitalisation and auditing arrangements (Basel accords). Tether is not subject to this.
The biggest difference you highlight is a big difference. On youtube, you can watch a series of documentaries by Milton Friedman, Free to Choose. In an early episode of this, he explains how the Great Depression was triggered by the fed failing to lend liquidity to a legitimate commercial bank that needed it.
As you point out, there is no equivalent liquidity safety net for Tether. It may be that in a tether crisis the fed would feel compelled to step in and bailout anyway to prevent systemic problems. The Long Term Capital Management bailout had this character. It was not the fed’s responsibility to bail it out, but there was noone else to do it, and if they had not then it would have created a systemic crisis comparable to the start of the great depression.
This will not happen in 2021. Crypto is not systemically important now. But as it becomes integrated, Tether becomes a larger problem.
Of course. The solution is to have governments back currencies like USDT, BUSD, USDC, Dai, etc. If they're gonna bail out financial institutions when they screw up, Tether should be no exception.
> he explains how the Great Depression was triggered by the fed failing to lend liquidity to a legitimate commercial bank that needed it.
Look, I am not an not expert on monetary policy. And I do believe Milton Friedman was a brilliant economist. But this specific American view that he popularized -- the Great Depression was caused by a failure of the Federal Reserve to monetize its way out of a recession -- was and is being challenged. Milton Friedman had a very narrow focus on technical monetary policy and therefore missed out on quite a many pieces in the puzzle.
After the First World War governments world wide were sitting on a pile of debt. Many were tempted by an easy fix i.e. expanding the monetary base, lowering interest rates and, hence, cheaply repay their debts. Inflation was rampant in the 1920s. As I am German, I'd like to add that it was the newly German republic (burdened with tremendous reparations) that destroyed its national currency in 1923 and, hence, triggered political turmoil eventually leading to the rise of fascism.
In the US inflation at first triggered an economic boom with cheap credits and ever rising stock prices. But early in 1929 consumer prices also have been rising sharply and the Federal Reserve reacted, correctly, by off-selling securities (especially government securities ...) and raising the Federal fund rate. But because the FED acted too late this caused a credit crunch. Stock markets being fuelled by credits crashed culminating in the Black Thursday.
While a bear market sets the stage for a recession (correcting all malinvestments in the past boom) it does not necessarily mean the onset of a year-long depression. This happened because of ill-advised economic policies by the Hoover administration.
The government started a massive deficit spending program trying to support wages by issuing public work programs and subsidising farming products. In 1930 the "Smoot-Hawley Tariff Act" cut off the American economy from foreign trade by a steep rise of import tariffs in an attempt to keep prices high as they were falling due farming subsidies. Foreign countries retaliated with increasing tariffs and American exports collapsed. As a result millions of farmers and businessmen went bankrupt since they could not sell their products abroad any more and prices fell even further. Since rising government debts were not monetized away any more by the FED, the government had to increase many taxes to unprecedented levels striking another blow at the economy. When FDR gained power in 1933 he essentially continued Hoovers policies and extended the 1929 recession into a decade of deep depression.
So what it is that we can learn from history?
According to Milton Friedman the FED should just have continued its inflationary policies to avoid the recession -- but to what ends? One could also conclude it should have simply started to counter inflation much earlier. But more importantly, the Federal government should not have restricted the economic freedom of its people in a phase where the economy tried to recover from a over-inflated boom phase caused by the FED itself.
I am not implying that this is the only correct interpretation of history. But HN readers might be interested in a completely alternative view of the events that led to the infliction of this great American trauma.
> Remember, Tether has no upside. There is no reason to ever hold Tether for any length of time.
"There is this product/service X, that is bought and traded fro billions. I don't see any use cases myself so clearly there isn't any reason to use it. Market is wrong and I am right."
The point is that the maximum value of 1 Tether is 1 USD. No matter how long you hold it, it will not be worth more than a dollar held in a safe, insured bank account.
I've been following cryptocurrencies since their inception. No one who knows anything is investing in or holding fiat based currencies. It may make some people some money, but it is assuredly not going to make you any money, and will probably make you lose money.
Plenty of crypto veterans use stablecoins. The benefits are that its much faster to transfer globally in minutes and works on weekends. There are also high yields from liquidity mining that anyone can benefit from.
Tether as an organization operates with no transparency, and has a toxic symbiotic relationship with exchanges. I'm certain that Tether has backroom relationships with major exchanges - Tether provides liquidity to exchanges in the form of short term USDT loans. So Tether can claim their issues are backed by real reserves https://tether.to/wp-content/uploads/2021/05/tether-march-31..., omitting the convenient fact that much of the debt they own is itself denominated in USDT.
Tether uses this scheme to issue loans and collect interest without the pesky step of actually having cash reserves to loan out.
>I'm certain that Tether has backroom relationships with major exchanges - Tether provides liquidity to exchanges in the form of short term USDT loans.
Is there a reason why exchanges even need such loans?
>Having all that Tether massively increases trade volume.
How? Having massive amounts of tether in your wallet doesn't increase trade volume, having users who trade increases trade volume. If I own 1B USDT and deposit it to some random exchange and let it sit there, the volume isn't going to change one bit.
Without stablecoins, people that want to cash out at a certain price will be cashing out to fiat, which generally is not a seamless process and requires stronger KYC, etc.
With a stablecoin like Tether, you have people constantly "cashing out" by just trading their BTC/ETH/etc for Tether. It is much easier to go back and forth between some "hard"-dollar value (scare quotes due to the question around how "hard" Tether actually is) and cryptos, and therefore encourages more trading. Long story short – Tether reduces the friction of certain trades, which obviously is going to make those trades more common.
> Without stablecoins, people that want to cash out at a certain price will be cashing out to fiat, which generally is not a seamless process and requires stronger KYC, etc.
Are we talking about whales or someone holding a bitcoin or two? Trading/withdraw limits at non-USDT exchanges (eg. coinbase/kraken/gemini) are quite generous, and you'd only be running into issues if you're selling several bitcoins per day. As a concrete example, kraken has a $500k daily withdraw limit for their "Intermediate" account.
Everyone I know trades in stable coins. It's the safest to park overnight or to keep coins in when you don't want to be exposed to crypto.
Most exchanges do not have true USD. Coinbase and binance yes, but only because they do the KYC work. Anywhere else like Probit, KuCoin, any DeFi - there will only be stable coins.
Remember, Tether's customers are the exchanges, not random end users. New Tether mints go directly to the exchanges, presumably in exchange for short term loan agreements (Tether themselves doesnt claim to have more than a few percent backing in cash, its mostly unspecified "commercial paper"). The exchanges can now use this new found liquidity to trade themselves, run promotions, etc.
I think it would work on margin trading. Having more asset allows to lend to more margin traders. Which also more risky so more chances for the exchange to get fees
Can you link to some? Most of them are pretty modest, eg. create an account, make $500 worth of trades and we'll give you $50 in USDT. You certainly don't need to move all of your holdings over to take advantage. Moreover, I don't see how account opening bonuses are shady. It might be cheaper for them if they can get hold of USDT for cheaper than its face value, but if that were the case I don't see why they don't go with the more straightforward route of directly selling USDT for USD (eg. https://trade.kraken.com/charts/KRAKEN:USDT-USD).
Honestly stablecoins - specifically tether - is about the only thing about crypto that genuinely frightens me.
Crypto rollercoaster - up down sideways and in circles - sure I'm game. Tether that is stable until it implodes...hell no. Even without direct exposure the blast radius worries me.
Honest question. How's Tether imploding different from e.g. a public company suddenly shutting down and its stock price going to zero? I imagine the two scenarios being similar in the sense that anyone holding tether would eat a big loss, but aside from the event obviously affecting investor sentiment, wouldn't it just be more or less business as usual for other coins? As in, couldn't BTC/ETH/whatever people just use other stablecoins instead?
I feel like the risk of full-on panic selling seems more and more unlikely as time goes by and more institutional investors get into crypto. And even if everyone did take out their money at the same time, isn't most of the value actually backed by the dollars of whoever was the biggest fool?
Tether imploding isn't at all like a public company closing shop, because public companies are Real Things and have public data about sales, revenue, employees, business relationships, etc. And even the ones that implode go through bankruptcy court where their assets are doled out to debtors and shareholders.
Tether imploding would be more like a bank run, where you can see YOUR MONEY as a number on the screen then when you go to cash out, you simply can no longer access your money. Or maybe you can withdraw $100 a day, but no more. If and when that happens (or threatens to happen), everyone freaks out and tries to get their money at once - which is exactly why the banking system in the U.S. is backed by the federal government so this doesn't happen.
The higher risk is that a good swath of crypto investment is done on leverage, which can increase with the more money you have. So with $100MM and a bit of lying you can go invest 10x your money in crypto and get some fat returns - lets say you go all-in and put $1B in Tether and get an 8% return on your money - thanks to leverage you are actually making 80% return on your $100M (sample #s, but you get the idea). This works great until things blow up, because you don't just lose your $100M, the BANKS that gave you leverage ("margin") lose $900M too, so one idiot taking this gamble can have a massive impact on the banking system as a whole.
And that wasn't even fallout from a Ponzi scheme, but simply from: bad risk management + leverage + minimal oversight + lying. The real stupidity is that these banks have continued to provide margin loans at very low rates with loose oversight, which should remind you of "race-to-the-bottom" mortgage market that blew up housing around 15 years ago. Except now we are talking about hedge funds and billionaires and a billions of dollars being thrown into shitcoins and NFTs. So when this implodes there won't be any collateral at all to rely on.
Wasn't that GC's point though? The run-on-a-bank analogy only applies if you are holding Tether when it happens. If you are rightfully paranoid about Tether and therefore don't hold any, what is the damage for you?
Isn’t this like saying a run on the banks won’t damage you if you keep your money in a mattress?
Even if you don’t keep any money in a bank, banks collapsing would still hurt you. The stock market crashing hurts more than just people who own stock.
Right, but a run on a bank does not necessitate collateral damage.
As an example, let's say Capital One has been fractional banking (as they all do) but for some reason people get paranoid about it and there is a run on the bank. Everyone tries to withdraw money Capital One doesn't have. As long as the govt doesn't step in and socialize losses on the back of the taxpayer, you're left with a bunch of people who had "deposits" at Capital One that are now non-existent because Capital One doesn't have any money left. Those people are of course hurt, but the person who only banks with Chase would be hurt how?
People who only bank with Chase are likely owed money or expecting income from Capital One customers who now unexpectedly do not have any money.
Also, Chase customers start worrying about the security of their money, and they start to withdraw from Chase faster than Chase debtors pay off their loans
They would benefit from the deflation and maybe actually hurt by the guns of the Capital One customers.
But looking at the low percentages of equity on banks balance sheets I think one bank run would easily jump over to other banks just because of the fear that they might happen
Except that it is not “one idiot taking this gamble” that can have a massive impact. The second and eventually third tier idiots are the banks and the government/people for allowing the concept of “too big to fail” to exist. An additional layer of idiots are the central banks that incentivise all of this by kicking the can down the road.
It’s not banks but I think the GP is trying to describe a margin loan. Basically you give (say) an exchange $100, ask them to buy $1000 worth of stuff using your $100 as margin, and if the stuff you bought looks like it is going to be worth less than $900 (ie if they would make a loss by selling all your stuff) they will call you and ask for more collateral or, if you are too slow, sell all your stuff for eg $925, leaving you with a less of $75.
A large company going bust doesn't imply that demand for other public companies was somehow fabricated.
The more apt comparison here would be something along the lines of the recent run up in TSLA being the result of purchasing from the infinite margin bug from Robinhood a while back. It would turn out the demand wasn't real, only there because it was free.
The implications for Bitcoin and other crypto also purchased with Tether, or with Bitcoin are a lot bigger than you'd imagine.
I just listened to a podcast about this and the guest Bennett Tomlin said these are things that may happen if Tether was shut down by the US government:
* Price of BTC/USDT ETH/USDT explodes as people try to exchange Tether to another liquid asset
* BTC and ETH start to drop on non-Tether exchanges as people sell and try to get out to fiat currency
* Tether collateralises futures contracts, when BTC/USDT spikes, some strange behaviour may happen in derivatives based on Tether.
* Tether allegedly is a meaningful percentage of the commercial paper market, if those assets are seized, it may affect that market.
* Some S&P500 companies have a lot of Tesla on their books. As BTC/USD drops, that would impact their stock price, and potentially the index overall.
* Some shadier crypto exchanges may go under or abscond with client funds in the confusion.
A lot of this could happen in a matter of minutes.
You could imagine a similar flight to safety happen if Tether was revealed to not have the reserves they claimed to and were unable to redeem client funds.
For what is worth, there's a huge blast radius if any of the top 3 collapse, with Tether (as the 3rd) likely having the smallest one - think of what happens to everything else when bitcoin crashes or even dips significantly.
Bitcoin crashes and dips all the time. It's lost over 80% of its value at least four times since it launched, plus the recent big 50% drawdown. It slows the cryptoeconomy for a year or so, but doesn't stop it, and then there's another bubble again ~2yrs later.
Bitcoin's high but natural volatility is not the same thing as the price collapsing due to the system itself fundamentally breaking. For example, the Global Financial Crisis was the result of the system itself fundamentally breaking, not natural volatility, and its blast radius was immense.
Tether or other major stablecoin collapsing due to being exposed as a fraud, or a fractional reserve with no reserves, or similar, would be more analogous to the GFC. And the blast radius could be worse than any of Bitcoin's 80% drawdowns, both economically and wrt to regulatory and legal attention.
While tether is shady as hell, the fact that it is not deflationary, that the weaknesses in its balance sheets are more visible and that it is tied to a monetary policy that doesn't encourage hoarding makes it tamer than deflationary coins in many ways. Yeah if it collapses, some other cryptocoins are going to be more volatile than usual but even Musk tweets can do that (and this volatility may actually help prevent these coins from becoming systemically important and dangerous).
Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets.
> Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets.
I worry about this too. Essentially, new money creation can go toward financing three objectives - production (manufacturing & innovation), consumption, or asset speculation.
If you have a financial system that’s financing mainly production, and somewhat consumption, you achieve widespread and equitable growth without inflation. This is the ideal. It’s how the Japanese rebuilt their economy after WWII, based on the theories of Osamu Shimomura, focusing new money creation on production.
But if your financial system is financing mainly consumption, you get inflation without growth.
And if it’s financing mainly asset speculation, you get financial instability and crisis, wealth concentration, and inflation.
This is all from Richard Werner’s work and research [1][2].
Deflationary cryptocurrency, at least in its early days, is financing mostly asset speculation.
However, that may be an unavoidable part of bootstrapping a new kind of money technology. But as your blog mentions, at some time in the future it will reach a steady state, no more rapid appreciation, and then what.
One of the big public debates is about whether transaction fees alone will be enough to finance mining and thus security of the network, after both the mining subsidy ends and the price appreciation levels off.
Another less public debate is how “HODLers” may then need to reinvest more of their gains into building value-adding services for the network to continue economic growth, despite the individual incentive being to hoard.
I don’t think the story has been completely written on deflationary cryptocurrencies, and am still watching to see how they deal with this eventual problem. But the sound money religion surrounding some of them is preventing an honest assessment of these problems.
I just don't see it being worse. There are plenty of replacements in place - USDC is also in the top 10. BTC crashing 80% is at least similarly drastic (many losing 'faith' or all their savings in crypto) and I don't expect the recovery from a Tether crash (which is also a much smaller part of the market and again, has replacements) to be worse or take longer.
In the GFC, the financial system locked up because banks stopped lending to each other, which is otherwise a primary activity in a working financial system.
They stopped because the collapse of Bear Sterns and Lehman Brothers made them realize that anyone could be next and they all had massive counterparty risk with each other. Why lend to someone who could be bankrupt literally the next day?
They all had taken on massive leverage, collateralized with mortgage-backed securities the ratings agencies said were high quality. But those MBO's weren't and began defaulting en-masse, correlated in ways both the ratings agencies and the banks either didn't understand or willfully ignored.
If central banks and governments hadn't stepped in to provide emergency liquidity support, interbank loans would have defaulted en-masse and the entire system gone bankrupt and collapsed. That's what it looks like when a financial system breaks - it literally stops working, activity ceases, like a core dump or blue screen of death.
Natural volatility happens all the time even when the financial system is not broken or breaking. It's just the price discovery process in action, where different buyers and sellers with different views on the future value of the things are trying to find the best deal. Price shocks can be part of it, abrupt movements in price due to some event, but as long as the underlying mechanics of the system continue working smoothly, it's not an example of the system breaking.
Maybe the banks should upgrade to trustless systems then? On the otherhand they just should face that they trusted the wrong parties and go bankrupt otherwise the incentive system gets rigged (thats where we ended up nowadays)
Yeah, the alternative was for the Feds to let them fail, then take them into receivership similar to the S&L crisis back in the 80s. But after decades of dismantling Glass Steagal and consolidating into megabanks, they had enough political power this time to orchestrate a bailout.
I'm not sure any technology can solve the fundamental problem, but the post-Great Depression regulatory regime did for decades until it was dismantled in the 80s and 90s. It's no surprise that less than a decade after Graham-Leach-Bliley dismantled the last bits of Glass-Steagal in 1999, that we get another financial crisis similar to the Great Depression. Glass-Steagal mostly worked, and served to decentralize the banking/investment banking/insurance industry.
I find it weird that any person 'hodls' any crypto. I pick the rallies (like the one last night) and ride them, then sell. I cannot, besides stress, understand why anyone would hold crypto currencies at this point. It is too young and Wild West. That's why riding waves is easy and if you trade half decent you can make fortunes. But it can be gone tomorrow; for instance if Tether gets called on it's bluff.
Yep, but I am not holding the burning bag of poo. So yes I know that but I am not going to be that religious person that does that first and I do not get why anyone would.
People hold crypto for the same reason that someone would hold any investment, they believe it will go higher. Of course that could be wrong with crypto, but the same applies to any investment. Risk/Reward.
Well, let us see in 10 years. You might be very rich or have $0 from crypto. I will have my money even if it tanks and be very rich if it does not. If you hodled, you lost on days like 19 may, I almost doubled up. I just don't get the religious part: if Biden 'takes on ransomware criminals', btc could drop to 0$ today and it will crash the rest with it. And it will not jump to 1m$ overnight, so buy low sell high is also generally the quote on this.
The frightening things are the most transformative. Decentralized stablecoins represent a huge class of use-cases for blockchain. You don't have to tether the value of a stablecoin to a fiat currency necessarily.
Tether imploding would just mean a couple more years to stack up.
People who don't understand the technology would flee, thinking it was just a fad, those that do understand it would stay, stack up and wait a few years.
Ah yes, the "technology". Any day now. Won't know what hit them. Around the corner really, alongside cold fusion and the chewing gum that replaces toothbrushes.
The same criticism applies, a global distributed consensus is fundamentally flawed as a payment system, and the current ad-hoc organically grown mess of different centralised payment systems interoperating is somehow still more suited to processing payments quickly and reliably than ‘crypto’.
Fast transfers, trusted partners, regulation, audits, identity verification, fraud prevention, backing, sound money. All these things are important and valuable, and while our current system is really flawed in some ways (in particular the control of politicians over money supply and the monetisation of debt), cryptocurrencies do not offer a solution to the most pressing problems and introduce too many of their own.
How are credit cards not the most terrible thing ever? Some random number with an expiry date and an additional number is the key to your wealth (subject to a lot of terms and conditions)? I would rather go with a cryptography based solution, where all the terms and conditions are open source code, all day
Yeah, like online shopping. Remember that fad? Luckily the .com crash showed us that the critics were right and nobody ever got rich from that dumb idea again.
I’m certain I’ve seen examples akin to “people want to touch and see the products before they’ll consider buying them”.
I think the difference with crypto is that over time as more people look under the veil the number of naysayers grow, whereas with online shopping the naysayers have gone extinct (maybe RMS uses only cash or something).
Last night I stumbled across a group freestyle rapping and hung out for a bit. At one point one of the rappers talked about putting money into AMC and how it was a bumpy rollercoaster of a ride.
It really put a face on the other side of a lot of these cryptos and meme stocks. It’s entirely possible the fellow was a savvy investor (he certainly could freestyle very well) however judging by how his posture went from exuberant and confident to deflated as soon as he mentioned AMC in his own freestyle I’m fairly confident he bought in at the top.
And it certainly didn’t surprise me that at my local stomping grounds I’d be hearing the dismayed crewing of the fleeced.
Not obvious to me that it would be catastrophic. There are other stablecoins even if Tether is a 75%-funded scam (and honestly, who in crypto _hasn't_ taken a 25% haircut at some point?)
Some people holding cash* would get hit, but there's no real magic to starting a 1-1 backed stablecoin. Someone will fill the space, since it's obviously needed.
Tethers own press release last month showed them as having around 5% cash and treasury bills (more or less as liquid and stable as cash). Most of the rest is unspecified "commercial paper" - if that is commercial paper from, say, Apple, no problem. If its a debt issued by unregulated, offshore, heavily leveraged crypto exchanges, it could be more or less worthless. The general consensus is that if it was the former, they'd say so, so its far more likely the latter.
> The general consensus is that if it was the former, they'd say so, so its far more likely the latter.
They specifically describe their loans as "secured loans (none to affiliated entities)". There's no such annotation on their "commercial paper", giving the impression that this category (which amounts to slightly under 50% of their overall holdings) may consist in large part of loans to other crypto exchanges, possibly in the form of Tether tokens.
For those trying to say that USDC is 'clear' and backed, remember that an attestation is not the same as an audit, circle has not provided any audit and same as tether, won't even mention an audit.
I choose to believe that what circle and coinbase are doing is creatinng a lot of liquidity by taking coinbase cash and turning it into USDC but at some point a lot of those USDC are being made the same way as tether, is just not real money comming into the ecosystem from either retail or institutions, but just imaginary money that is traded back and forth by coinbase bots to keep the price moving on their exchange
Bitcoin's reliance on Stablecoins? I think the wsj is confused and has this backwards. Additionally, like all mainstream media sources, they cannot seem to understand that Bitcoin is what happens on the blockchain and that 99% of the breathless hype about trading and finance bro stuff is completely off chain and only tangentially related to Bitcoin.
In practice people care about what happens off chain as long as it affects the exchange value.
And the article is talking about the alleged Tether manipulation of Bitcoin's exchange value.
Don’t underestimate the importance of market makers - people who create liquidity on the exchanges by constantly resting buy and sell orders on the book, the modern equivalent of the guys on the exchange floor in the bright jackets. Exchanges without market makers lose business to exchanges with market makers. In general, it is rational to trade on the markets with the tightest spreads.
Market makers need mechanisms to move money around and manage risk. When tether did not exist, all this would have been painful, but equally painful for all market makers. This is fine.
Tether created a maybe-good-enough mechanism for bridging conventional money into crypto. Once it existed, then each market maker would have needed to make a decision: use it and get the benefit of it whilst losing sleep at night over its risks, or not use it, lose edge to your competitors, and close up shop. You may find that the market makers hate tether, and recognise it for what it is (wildcat bank) but feel compelled to use it to stay competitive.
> they cannot seem to understand that Bitcoin is what happens on the blockchain and that 99% of the breathless hype about trading and finance bro stuff is completely off chain and only tangentially related to Bitcoin.
The same could be said of crypto advocates who leave their "coins" on an exchange
How much trading volume does tether have compared to "bitcoin + all the other cryptos"?
Answer: a lot, Tether is the unit of account. If something happens to it the crypto space explodes as the volume of real dollar trades in crypto is a fraction of Tether trades.
That would certainly be a novel notion of systemic risk. It's like arguing that the financial system would collapse if TSLA trading were halted tomorrow. There's no shortage of other liquidity channels between market participants, so the loss would be confined to the held value of the security itself and any of its derivatives. I'd argue that the systemic risk of my toy analogy is actually worse than Tether, as the derivatives tied to its debt and futures are almost certainly a huge multiple of its notional value. I would venture that isn't the case for Tether, but I suppose it's possible too.
It costs $1 to increase the market cap of a fiat pegged stable coin by $1, while changing the market cap of Bitcoin is a lot cheaper because there's no safe way for a market maker to provide substantial liquidity for it. At any time this dynamic can start working in the other direction, and the market cap of Bitcoin can fall below the net value converted to it.
Well, no, it costs absolutely nothing to print off another billion Tethers. We only have the vaguest possible assurances that there's something behind each USDT, and they've already admitted it's not actual dollars.
I don't really know what you're saying. It's not much less safe to provide liquidity to bitcoin than to do so for any of the trillions in securities priced vastly in excess of the book value of their underlying assets.
I always liked the concept behind BitShares, but I never hear much about it. Conceptually, it seems like it targets the third-party concern.
Anyway, the idea of BitShares is (was?) to ensure stability of their crypto currency through futures contracts. You buy/sell futures contracts that peg their coin to another asset. This guarantees a certain payout at expiration.
For example, you can buy a contract that guarantees you receive (or must pay) the bitshares-equivalent of X USD when the futures contract expires. (You can also have contracts that guarantee the bitshares-equivalent of X ounces of gold, etc.)
So the future (smart) contract itself acts like the fungible stablecoin, even though it's not backed by the actual asset. And it doesn't rely on a trusted third-party. Rather, its stability relies on the futures speculator market that trades these futures contracts.
Such a concept seems like it doesn't have to be limited to bitshares, but can be generalized into a smart contract traded on blockchains like Ethereum, etc.
honestly, anyone with half a brain do not see that cryptocurrencies are re-hashing (heh) every single scam from the unregulated investment market times?
every single one of them. Many times over.
I think everyone knows, because, c'mon. But everyone thinks they are the smarter one and will be the ones fooling others and making money. Which makes this article, and yours, pointless, because, everyone already knows that.
I think you're significantly overestimating how much experience and knowledge most that briefly dabble in currency have both over what is currently going on and over what types of finance scams have happened in the past.
I've heard "it's a scam" a lot recently, but nobody can articulate how in a way that is similar to any real, provable scam in the past. It's a giant, distributed scam?
I think its based on a fundamental idea of buying something that you know is worthless in order to sell it for more than you bought it by convincing the buyer that it isn't worthless. Eventually it will burn through all potential buyers and there will be no one left to sell to. Then it collapses because everyone finally agrees that it actually has no value.
Cryptos have intrinsic value because they drive efficiency of value exchange. Specifically they allow for trustless exchange of value, which in an increasingly globalized world has become appealing for various reasons.
Some cryptos have value beyond that, like ETH, because the Ethereum network itself has intrinsic value, and ETH is the only thing you can use to pay the Gas fees if you want a program running on the network.
Hm, is there a theory of pricing ease-of-transfer ? Of course, it would have to depend on the preferences and whatnot, but still, seems like something that there should be some good theory of, but I haven’t heard of one.
Side note: Aren’t there tokens that sort of have a kind of stored gas? Like, you can cash it in to get a refund of some of the gas cost of the transaction?
Yep, I'm not sure what exactly you call that in econ. What I do know is that this is the entire thesis behind Visa, Paypal, etc. who have some of the highest market caps in the world. If they have value for facilitating transactions then cryptos do too.
WRT the gas fee thing: yes, technically you can send a miner whatever you want in order to incentivize them to include your tx in a block, but the only thing baked in is ETH. Additionally, after the London hard fork (slated for release next month), EIP-1559 will be live which changes the fee system to become a "burn" fee system rather than a "tip to miner" fee system, which will force all fees to be paid in ETH (and algorithmically determined, rather than somewhat arbitrarily picking a fee that you hope is high enough for miners to include your tx).
ok, but when you are sending money via visa or paypal or what have you, you aren't sending shares of stock in that company, you are sending something denominated in dollars.
The theory around "prices people are willing to pay for ease of transactions" seems probably not that tricky,
the theory around "the value people will assign to a good based on ease of transfer of that good" seems like it would be more complicated and confusing.
I think you're overcontemplating it. Sure, the means of transaction and the network responsible for the transaction are one in the same, but how does that fundamentally change the equation? If anything it makes cryptos more valuable, not less, because you only need the single token and you can do both (have a share in the network and transact on the network).
I’m just saying the theory of how to price it is quite different!
The value of a PayPal share is tied to the expected future profit of PayPal, to how much transaction fees will be total, and how much costs will be.
This is a distinct question from the value that a user assigns to the ability to make transactions using PayPal, which, I suppose corresponds to the demand curve of how many transactions/ how much is transacted, given different transaction fee sizes.
Of course, an analogous demand curve should also apply to bitcoin (or what have you).
But this demand curve doesn’t seem enough to give an explanation for what price to expect. (Not just “it doesn’t explain the actual price” but rather, I don’t see how it by itself would explain any price.)
I think the most valuable thing that makes bitcoin efficient for transactions is its cheap verifiability in comparison to gold where there is a long history of counterfeiting. Additionally Bitcoin is easier to transfer (in most cases) and harder to confiscate
Wait, you really think gold is only traded for speculation? Gold is an extremely useful metal. Its not just an artificially limited good.
If you’re buying gold you’re not purely depending on finding another sucker to buy your gold. You can sell it to any one of the countless manufacturers or jewelry makers using it every day. If the price crashed too much, these would probably just increase their inventory of gold in anticipation of a future price increase, which would itself drive up price. If the price stayed low they can lower prices on the goods they’re making, increasing demand for gold, stabilizing the price.
That’s why cryptocurrency is not digital gold. There are no such mechanism setting a fundamental floor for how low the price can go.
Crypto is really exciting for new entrants to the finance space.
In traditional finance all water has been wrung out, but in crypto relatively unsophisticated versions of strategies like arbitrage can be quite successful. Traditional finance institutions are more sophisticated and have more resources than their crypto equivalents. I really think traditional finance orgs need to realize they can employ the same skills to the crypto space with a much lower investment for the same returns because the space is so immature.
While tether gets piped around ethereum between centralized exchanges, few on chain defi applications actually use tether outside of a few stable coin focused swapping apps. Most of the lending and borrowing apps prefer USDC or Dai.
Load the Tether fud. It’s like clockwork every time Bitcoin goes down haha. WSJ does their overlords’ bidding. Now we are comparing it to pre civil war money. They are running out of angles.
It isn't really different from normal banking. Banks are allowed to create money by issuing debt, and the loan agreement itself works as the reserve for the issued currency.
In both cases the thing doesn't blow up if the debt is collateralized with something that keeps appreciating against inflation. It can go on forever, but people whose savings are decimated might get angry at some point.
Tether is very good for borrowing, if you think it might collapse. You can borrow a large amount, buy a hard asset with the borrowings, and if it collapses you'll only need to pay back at a discount. (Not advice)
I am beginning to think that it would be worse if USDT went over the peg rather than under! Therefore, it would not surprise me if the Tether FUD might be intentional - otherwise Tether might start "collapsing" the wrong way.
The problem with that plan is that Tether loaning (outside the interesting relationship exchanges have with Tether) is generally gonna be DeFi loans, which are massively over-collateralized (something like 2:1 collateral to debt). If Tether crashed, it is not clear that your collateral would not be liquidated to cover the nominal value of the original loan, rather than the new (near zero) value of Tether.
Actually, what I've described is called "shorting".
In defi it's never the nominal value, but the current value, so it would be very clear that your collateral would unlikely be liquidated. You can also use something like USDC for the collateral for even more safety. (I think you can already see some evidence of this strategy since the interest rates for USDT are always higher)
The scenario where all the collateral would be liquidated would be if Tether broke its peg and went up. That would be a disaster. (Also called a "short squeeze")
AFAIK all DeFi lending based around Tether is predicated on the idea that a Tether is worth $1 USD. I'm not sure the smart contracts / etc involved are particularly resilient if that changes. The attempts at making these DeFi systems robust is almost entirely focused on what the system needs to do when the value of the non-stable crypto fluctuates wildly, not the stablecoin.
Nope, Tether is a soft-peg, meaning that it sometimes trades above or below $1. Therefore the contracts can deal with it going below or over, and it often does.
It’s “Wildcat Banks,” with additional regulatory risk. Crypto in the form of Bitcoin is not systemically risky. Crypto in the form of “stable coins,” which are actually shadow banks, is risky.
Honestly that's a good thing. Let the government stay out of this mess.
If crypto speculators lose their money I don't want society to have to bail them out like what happened with Icelandic/Cypriot bank account holders.
All of the things that tether holds as cash are repo-able for cash on the repo market.
On tether are people worried about this conversation
…
Tether: we go back so long jp, here’s some more junk bonds . You like this collateral
JPMorgan: we are not interested in taking it anymore . Liquid on the run or mbs. We may be friends but we are friendly in the federal funds market, not repo . Post collateral or I’ll
Kill your operation and shut you out of repo.
One of the more common "bitcoin implosion scenarios" keeping people up at night has been Tether collapsing. Certainly that must be priced into crypto by now. The accusations and suspicions that it is not backed by hard currency have been around for years.
Well it would rise proportionally to the value of Tether eliminated, for no net gain, but at the cost liquidity across various exchanges, for a net loss.
tl;dr they think its bad because the federal reserve wont shore up these markets, while conceding that they work better than banks would in a run given that the reserves are higher by sometimes an order of magnitude even in the most controversial stablecoins, and all the stablecoins can pay out in-kind with assets instead of just in dollars
“But the Fed wont bail it out in a run or market crash, even though it will work more perfectly, for that reason I’m out”
